The European landscape of listed biotech companies: 2018 review (Part 5)

9. Conclusion

This introductory review of the public biotech landscape for 2018 provided a comprehensive overview of the main characteristics of this landscape, both at the European and at the country levels.

We selected 150 listed companies into our core biotech pool, from the main European stock markets. Unsurprisingly, this selection mainly consists of small companies by the size, and also by the market capitalization. We saw that almost 60% of the listed biotech companies in our selection had either reached the commercial stage (by themselves or with a partner), for 21% of them, or were at late stages of development (38%). We believe that this is a higher proportion than those who follow the European sector would think.

We also assessed the breadth of the R&D pipeline in Europe and for each country/cluster, highlighting e.g. more than 100 unique programs in phase 3 (running or just completed as of 31/12/2018).

While French listed biotech companies were displaying interesting pipeline characteristics overall, the picture was much more contrasted for the British biotech companies. Indeed, a series of clinical failures and negative news had the UK sector’s biotech stocks to be cut by half, on average.

We also pointed out a relatively early-stage landscape in Sweden, even if Sweden hosted the largest number of listed companies in Europe at the end of the year. Overall, 2018 was rich for the Swedish sector, with one buyout, and especially in the second half, with the fire started during the summer by BioArctic. However, it will probably face an important challenge in a near future: how to feed all these companies with cash? The situation could remain manageable as long as the ecosystem remains relatively “early-stage”, but it might become much more challenging then.

The German sector characteristics are mainly driven by 2 R&D powerhouses, Evotec and Morphosys. This is the same for the Danish sector with the largest European biotech company, Genmab.

The Belgian/Dutch biotech sector is the major in the class, without delivering impressive pipeline indicators, but clearly yielding outstanding performances as compared to the other countries. Galapagos and Ablynx broke out over the past few years, followed by argenx, and also Mithra in 2018. Moreover, this good momentum was materialized by 2 buyouts of Belgian biotech companies.

Conversely, we saw that the Swiss sector, despite a restricted number of companies, still presented good indicators, especially on the late-stage profile of the companies and the qualitative figures of their pipeline. Nevertheless, it did not prevent the stocks of the Swiss biotech companies to follow the same down trend as everywhere else in Europe in 2018.

Finally, we found almost diametrically opposed characteristics for the Southern Europe cluster (Italy and Spain), and for the Nordic cluster (Norway and Finland). The common points were the small number of companies in each cluster and undifferentiated stock performances in 2018. But Italian and Spanish companies have a much more mature profile than in the Nordics.

Based on these different national dynamics, 3 main stocks markets dominate in Europe: Euronext, well helped by the Belgian and Dutch ecosystem, much less so by the French one; Nasdaq OMX, relying on both a large offer in Sweden build over the past few years, and an established place like Denmark, home of the largest European biotech; and finally Deutsche Börse/Xetra, mostly relying on an historical list of biotech companies, including 2 large “platform” companies, whose success lies in their drug discovery engines and expertise.

In terms of IPO activity, the discrepancy between the “IPO boom” in the US and the gloomy numbers in Europe for 2018 was striking, denoting 2 opposite sentiment trends.

On the financing environment, the signals were mixed for the biotech sector on the European markets, since the total funds raised in 2018 (3.6 billion EUR) declined approximately by 15% from 2017. A decline almost only due to the low amounts raised from IPOs (-1.1 billion EUR). Interestingly, the funds raised from secondary offerings and directed issues -including equity investment from partners- even progressed in 2018 (+600 million EUR or +37%), partly offsetting the poor IPO numbers. More generally, in Europe, there is a systemic imbalance between the availability of financing for the biotech companies, and the growing needs. In such, having seen so many IPOs on the past 5 years might just have exacerbated this imbalance. Obviously, the situation might be different from one country to another, however global concerns remain. Solutions have yet to be found, unless a natural selection process occurs, with the “survival of the fittest”.

Lastly, we reviewed the 2018 deal flow. Out-licensing deals allowed approximately 1 company out to 5 to monetize some preclinical or clinical assets, for nearly 900 million EUR of cash inflows, and for almost 1.2 billion EUR including sales and divestments. These amounts represent a nice -and needed- extra, as compared to the financing numbers. Moreover, the momentum on the Europe/China deal axis will be interesting to follow in the coming years.

In conclusion, the European biotech sector exhibits very different characteristics from country to country, a bit like Europe in general, united but not unique from cultural or political standpoints. Unfortunately, there was a common point in 2018, which was the negative trend in terms of biotech stock performances in Europe, with only few national sectors outperforming. In such, the Belgian and Dutch sector was clearly identified as a stronghold in Europe over the past few years.

While a few companies, the “chosen ones”, are expected to show the way to success to their little sisters, a virtuous circle has yet to start. This is also why the sector needs success stories and companies who remain independent. The European sector needs to build on a larger community of specialized and educated investors, who understand the codes of this technical sector, and are less discouraged than the retail base by the attrition inherent to drug development.

So far in 2019, the long-term sector sentiment on the European markets is still following the descending part of a hype cycle (dismal IPO figures year-to-date), and it is unsure yet if the inflection point is close, or reached. We will not provide any 2019 data here, since we will release some in the coming weeks on, following the release of this review. However, the market data for Europe, also available on our website, clearly indicate mixed stock performances year-to-date, despite a runup period at the beginning of the year across the board. A déjà vu, so that as of today, it is not even certain that 2018 was a bottom year for European biotech stocks. Anyways, 2019, we already know that, will be a year of superlatives for the European listed biotech sector.

Like in the introduction, we will end this review by a small list of questions, starting with 2019. Will most of the European sectors recover in 2019, and especially the British sector? Will Sweden sustain the positive trend seen in 2018? How will the smallest clusters do? Will the financing environment confirm the few positive signs observed in 2018 or will it deteriorate? Will the pool of companies of the “billion EUR biotech club” keep growing? Will we see positive signs on M&As, IPOs, deals?

And on the mid- or long-term. Will the Belgian/Dutch sector “convert the try” at the commercial stage? Will the French biotech sector eventually find a leading company that can drag the sector up? How will the Swedish sector be funded in the future? Can the German sector be renewed, and how will the 2 leading companies do in the future? Can Idorsia follow the same path as Actelion? Can Genmab be an even brighter star, and can the company build on other successes than Darzalex? Could Southern Europe become a new hotspot? Will the Norwegian companies get a new breath after the premises of the past few years?

Potential answers on, in further communications from us.